December 14, 2018 MJ Shareholders
December 14th, 2018
Exclusive, News, Top Story
The Canadian cannabis market is projected to reach C$22.6 billion over the coming years, according to Deloitte, driven by the legalization of adult-use cannabis nationwide. While many companies are focused on supplying the recreational market, the medical market may continue to offer the best source of higher margin recurring income. Many successful LPs are also expanding their operations to include global markets.
Aleafia Health Inc. (TSX-V: ALEF) (OTCQX: ALEAF) (FRA: ARAH) has taken a very strategic approach to the market. By establishing a medical clinic before obtaining a sales license, the company created an immediate source of more than 50,000 recurring patients for its cultivation business. Management has also invested in global opportunities to help diversify revenue outside of Canada, while strategically growing into the recreational space.
Existing Medical Clinic Business
Many Canadian LPs have focused on cultivation over building up a customer base. In the recreational market, this approach makes sense since demand is outstripping supply and customers often shop in stores. The medical market differs because it’s a mail order business that requires more hands-on assistance. Many patients prefer to work with medical professionals and tend to stick with the same LP over time.
Aleafia Health operates 22 medical cannabis clinics staffed by physicians and nurse practitioners. With over 50,000 patients serviced through these clinics, the company has a significant source of recurring revenue with a high competitive barrier. The company’s new cultivation operation has already benefited from this immediate source of customers, which are very likely to remain customers as long as they remain patients.
At the same time, the company has amassed potentially the largest medical cannabis database in the world. With data from over 50,000 patients, the company could determine what strains are most effective for treating certain conditions and mine other valuable insights. The intellectual property and research and development value of this data is significant, and the company is already leveraging it internally to develop new and innovative products.
Aleafia Health recently reported third quarter financial results containing the first cannabis revenue in its history, days after securing its Health Canada Sales License. Revenue grew 36 percent quarter-over-quarter to $1.6 million, while gross profits reached $2.2 million. Management expects these revenues to accelerate moving into the new year as it brings about 98,000 kilograms of annual production capacity online next year.
“As the company has achieved a number of important milestones, we are extremely encouraged by our third quarter results,” said Chairman Julian Fantino. “It has been a transformative period for Aleafia. Our first cannabis sale marks the beginning of our cultivation expansion with Aleafia producing 98,000 kg of dried flower on an annual run rate basis. We look forward to soon supplying our growing base of over 50,000 patients.”
In addition to its strong financial performance, the company continues to maintain a strong balance sheet to support its expansion. Management reported $22.8 million in cash on hand at the end of the third quarter, which provides it with a lot of flexibility when it comes to investing in future projects and expansion efforts. For example, the company recently expanded outside of Canada with a 10% equity stake in CannPacific Pty Ltd. of Australia.
Aleafia Health announced that it would move forward with plans to build a secure, low-cost outdoor cannabis grow in early October. After securing local regulatory approval for a 60,000 kilogram capacity expansion at its Port Perry cultivation facility, the company is well positioned to build out its new outdoor cultivation site after standard Health Canada approvals. The new cultivation area could reduce capex, operating expenses, and cost per gram output.
“Secure outdoor cultivation will see Aleafia product cannabis at among the lowest cost per gram rates in the industry, when compared to traditional greenhouse cultivation,” said Aleafia Chairman Julian Fantino. “Aleafia is once again positioning itself as an innovative leader in the cannabis industry.”
The company plans to complete its first harvest during the summer of 2019, subject to regulatory approvals. With a perfect climate and landscape for agriculture, the new project could unlock significant potential for shareholders while simultaneously providing a boom to the local tax base and create new jobs.
Aleafia Health Inc. (TSX-V: ALEF) (OTCQX: ALEAF) (FRA: ARAH) represents a compelling investment opportunity in the cannabis space. In addition to its 50,000+ medical patients and 98,000 kg of annual production capacity coming online next year, the company signed supply and international brand agreements to assume a leadership role in the adult-use cannabis space and generate significant revenue through all stages of the value chain.
In addition to these operational catalysts, the company’s management will now pursue the final stages of the NASDAQ application process, which could provide a lot more liquidity to shareholders, as well as open the door to institutional investment over the long-term.
For more information, visit the company’s website at www.aleafiainc.com.
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About Ryan Allway
Mr. Allway has over a decade of experience in the financial markets as both a private investor and financial journalist. He has been actively involved in the cannabis industry since its inception, covering public and private companies.
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